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Fair Tax vs. Flat Tax proposals compared

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I keep seeing the Fair Tax and Flat Tax proposals in the news and get confused which is what. Here is a scorecard:

http://pafairtax.org/resrcs/FlatTaxFairTaxComparison.pdf

Fair Tax wins my favor, for the many reasons listed in the pdf. The Fairtax is the more radical change because it requires repeal of the 16th Amendment to the U.S. Constitution.

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  • 2 weeks later...

My only (slight) concern with changing this, besides the fact that I don't see such a radical change happening at all today, is that changing all our taxes to what amounts to a sales tax implicitly inflates our currency significantly (by about 30%), because people will suddenly have more dollars than they previously had (whatever was paid in other income/FICA taxes), but each dollar will buy less goods due to the 30% tax on all finished goods (the 23% tax rate if I understand it correctly is arrived at by saying that 1 dollar is 77% of 1.30 (dollar plus new fairtax), so out of the new price we are now levying a 23% tax).

Overall this probably evens out when looking at the entire economy, but it is important to realize what this would do to previously existing assets and liabilities. There are most likely some unintended consequences of instituting this tax, unless we do it very slowly over a long period of time so people can take it into account and alter their behavior.

I don't think you can get around the fact that going from an income tax to a sales tax you get a de-facto devaluation of the currency because everyone now has more dollars to spend. Maybe over time goods will become cheaper to counteract this, but it certainly can't be ignored as a potential problem (and it would hurt anyone with significant current assets, like any type of inflation would).

Mathematically speaking, let's use the following example:

Say I make 100k/year, and I currently pay 35% income taxes on this for a total take-home pay of 65k (the exact numbers don't really matter, I just invented some on the spot). Under the Fairtax proposal I would instead have a take-home pay of 100k, but anything I buy would have a 30% tax on top, meaning that I only can buy about 75k worth of goods (75*1.3 is about 100k). Even though the currency hasn't explicitly been inflated, de facto every dollar I have now buys only 75 cents worth of goods, so the real value of a dollar is reduced by about 25% overnight. That's cool if I had a lot of debt, because I can pay people back with my less valuable dollars, but it's not so nice for people who have a lot of money already...

Edited by Maarten
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Buy used goods with your old money. No tax at all.

That's one way to go, but it doesn't really address any of the other points I raised.

Maybe it can easily addressed by simply saying that if we pass the fairtax today, it will take 10 years to take effect so people can slowly transition towards it (although having to repeal the 16th amendment makes that somewhat tricky, practically speaking).

Separately, excluding categories of goods itself causes economic distortions that are not trivial.

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  • 1 month later...

Maarten, make sure you are taking into account the fact that the embedded taxes in the new goods and services that we buy will be gone. You are adding 23% to the cost of all goods and services without removing the tax compliance costs that will be abolished. Pay special attention to the imbedded tax vs. surtax portion of the document. According to the Harvard research that the 23% revenue-neutral rate is based on, goods and services will only go up about 1% on average. You will be buying roughly the same amount of product with substantially more income, reducing your total layout in the end by increasing your buying power.

It's the 1.00 can of soup argument, which is basically mathematic semantics. If the soup is 1.00 at the register, then you can say it was a .77 can of soup with a 30% tax on it or 1.00 can of soup with 23% of taxes embedded. At the end of the day, .23 of my dollar are going to the government, so the latter is more logical to use because of clarity. The FairTax is supposed to be included in the sticker prices and not added later at the register for this reason.

Edited by Zavier
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The difficulty here is that one of two things (or some proportional combination of the two) must happen: Either peoples' pay must be cut by about as much as is withheld, or prices (which include the fair tax) must go up, because costs of production include peoples' pay. (Well it's not quite that bad as I will explain below, but follow this argument for now.)

The fair tax people like to talk about how there are a lot of hidden taxes in what we buy--but they include the income tax withheld from the workers who produce the product as part of that! For that to go away, gross pay must be cut by the amount being withheld. Doesn't really matter, you say... but I am sure every union in the US would scream bloody murder if you tried to cut gross pay even if take home stayed the same or increased.

Some things would actually go away though. These are taxes or tax related expenditures by businesses that _don't_ get printed on peoples' paychecks, so they can be eliminated from business costs and hence the base price of items without people objecting. Things like the compliance cost of paying corporate income tax, and also the "employer's share" of social security and medicare. The elimination of such would probably allow prices to be cut by 10% without having to touch the gross pay of the workers. (Source for that figure: 7.55 percent SS/medicare tax plus my personal guess as to what percentage of costs of doing business have to do with idiot IRS paperwork.) Products can be priced--pre sales tax--90% of what they are today, add 30% to that (which is 27 percentage points, 9. x .3) and if workers refuse to accept pay cuts, the price of everything will show a net increase of 17% (.9 + .27 = 1.17) but you will not have anything withheld from your paycheck. Or you will take a 17% pay cut but not have anything withheld from that paycheck.

You will, according to the Fair Tax, receive automatically each month a check equal to tax on the poverty level for your household.. if poverty level for you is $1000/month, you get a check every month for $230. This is a roundabout way of making poverty level income tax free. This check would be sent to everyone without regard for how much or how little they make so no one will have incentive to lie about their income or any need to file; Bill Gates gets this check and so does the unemployed bum. I don't particularly like this provision but IF someone is going to try to make part of one's spending exempt this might be the best way to do it.

Personally I think the benefits to this system vs. the current system are enormous.. you are no longer taxing _production_. BUT there is a gigantic trap here. The income tax must be totally abolished or this is a very bad idea.

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"Fair tax"? "Flat tax"?

Why would anybody want any income tax?

We should be working together to abolish the illegal, unConstitutional and undeserved income tax altogether and seeing to it that the unConstitutional and criminal organizations that are the IRS and the Federal Reserve are brought to heel and those who are responsible for perpetuating these institutions are brought to full justice.

That's my view of the situation anyway. :)

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You do realize that the Fair Tax is not an income tax? This isn't a choice between an income tax and another income tax, it's a choice between a form of sales tax and an income tax.

Now of course Objectivists want there to be NO tax but Ayn Rand herself stated that taxes would probably be one of the last non-Objectivist features of a society to go, if we were to start heading towards Objectivism.

Given that... what do we advocate in the meantime? Income taxes reek and not just because of constitutional issues, but because they force people to sell half the family farm and/or business when they inherit it. Property taxes are equally pernicious, you can be forced to sell your property in order to pay (or not have to pay) the tax. Only a sales tax won't assess you for more cash than you actually have access to--if you cannot afford the price with tax, you don't make the purchase and do not pay the tax. (It still has the effect of making things more expensive--enough so in many cases to alter your choices--but ANY tax has that, that's why they all stink.)

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You do realize that the Fair Tax is not an income tax? This isn't a choice between an income tax and another income tax, it's a choice between a form of sales tax and an income tax.

Now of course Objectivists want there to be NO tax but Ayn Rand herself stated that taxes would probably be one of the last non-Objectivist features of a society to go, if we were to start heading towards Objectivism.

Given that... what do we advocate in the meantime? Income taxes reek and not just because of constitutional issues, but because they force people to sell half the family farm and/or business when they inherit it. Property taxes are equally pernicious, you can be forced to sell your property in order to pay (or not have to pay) the tax. Only a sales tax won't assess you for more cash than you actually have access to--if you cannot afford the price with tax, you don't make the purchase and do not pay the tax. (It still has the effect of making things more expensive--enough so in many cases to alter your choices--but ANY tax has that, that's why they all stink.)

It isn't a choice at all. It's looters and their looting at the point of a gun.

For those who do support the income tax, the "fair tax" and/or the "flat tax", I have to ask: who will collect this money, who is it given to once it is collected and what is to be done with it?

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I asked because you seemed to think the Fair Tax vs. Flat Tax was a choice between two income taxes.

The way I understand it, the "Fair Tax" or the "Flat Tax" is a proposal to end the income tax and replace it with the "Fair Tax" or the "Flat Tax"?

Or will we get the "Fair Tax" or the "Flat Tax" and still have the income tax?

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the Flat tax, as I understand it, is an income tax with low rates and few deductions. Less complicated (which would reduce the compliance costs), but the government still has to be able to snoop into everyone's finances to be able to enforce it. It's just a modification of the income tax.

The Fair tax legislation includes a statement that it is contingent on repeal of the 16th amendment and would be intended to replace both the income tax and the "payroll tax" that funds social security and medicare. Snooping for enforcement would be limited to businesses, not individuals. The only reason the government would want to know your income, based on the Fair Tax, is to compute your social security benefit (as if it will last long enough for us to see it) and that can be handled by the existing W2 mechanism since only wages are used for that. (It's astounding to think how much stuff we deal with on a daily basis is due to the income tax--even the existence of IRAs and 401ks is an artifact of the income tax.)

I'll reiterate that the ultimate goal is to have no taxes at all--I am talking interim measures here, while we figure out how to persuade America that the government is doing FAR too many things.

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the Flat tax, as I understand it, is an income tax with low rates and few deductions. Less complicated (which would reduce the compliance costs), but the government still has to be able to snoop into everyone's finances to be able to enforce it. It's just a modification of the income tax.

The Fair tax legislation includes a statement that it is contingent on repeal of the 16th amendment and would be intended to replace both the income tax and the "payroll tax" that funds social security and medicare. Snooping for enforcement would be limited to businesses, not individuals. The only reason the government would want to know your income, based on the Fair Tax, is to compute your social security benefit (as if it will last long enough for us to see it) and that can be handled by the existing W2 mechanism since only wages are used for that. (It's astounding to think how much stuff we deal with on a daily basis is due to the income tax--even the existence of IRAs and 401ks is an artifact of the income tax.)

I'll reiterate that the ultimate goal is to have no taxes at all--I am talking interim measures here, while we figure out how to persuade America that the government is doing FAR too many things.

Thanks for the clarifications.

No need to repeal the 16th Amendment however. It was never ratified in the first place. That's been proven over and over again. We're being scammed and lied to.

The Internal Revenue Service is not in fact a government agency. The IRS is the collection arm of the privately owned corporation that is the Federal Reserve, which in fact has stockholders and in fact pays dividends to them and has in fact no jurisdiction over anyone or anything. They operate by the color of law, much in the way the federal government acts within the various states and tries to get away with it. Yup. We're scammed and lied to there again.

How do these scamsters keep getting away with all this crap? People are just dumb and lazy and -- blank out. Lol.

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Thanks for the clarifications. No need to repeal the 16th Amendment however. It was never ratified in the first place. That's been proven over and over again. We're being scammed and lied to. The Internal Revenue Service is not in fact a government agency. The IRS is the collection arm of the privately owned corporation that is the Federal Reserve, which in fact has stockholders and in fact pays dividends to them and has in fact no jurisdiction over anyone or anything. They operate by the color of law, much in the way the federal government acts within the various states and tries to get away with it. Yup. We're scammed and lied to there again. How do these scamsters keep getting away with all this crap? People are just dumb and lazy and -- blank out. Lol.

Actually, you are one scammed and lied to if you really believe all that nonsense. It's pure bullshit proven to be lies over and over again.

Just for starters: the IRS has nothing to do with the Federal Reserve, the IRS is part of the Treasury Dept.

Here is the full case for the tax conspiracy crowd, as best I could tell.

A little (very little) research into debunking the theses stated here yielded a good summary at answers,yahoo.com. That is better than anything I would come up with, so consider that your refutation.

This entry at Wikipedia ( United States Code) does a fair job at describing the problem created by a chronological record of the sequence of legislative acts of Congress, which is solved by the United States Code but then in turn creates the issue of the legal status of the Code. Sometimes Congress simply re-enacts an entire Title of the U.S. Code as published into law, neatly solving the problem. The rest of the Code is accepted by the courts as evidence of the law, but which can be controlled by the text of the 'statutes at large' if there is a problem. Thus the conniption fit over the difference between the parts of the U.S. Code that are "positive statuatory law" and those that are not is a non-issue unless and until anyone finds an actual contradiction between the acts of Congress and what is published in the Code.

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Actually, you are one scammed and lied to if you really believe all that nonsense. It's pure bullshit proven to be lies over and over again.

Just for starters: the IRS has nothing to do with the Federal Reserve, the IRS is part of the Treasury Dept.

Here is the full case for the tax conspiracy crowd, as best I could tell.

A little (very little) research into debunking the theses stated here yielded a good summary at answers,yahoo.com. That is better than anything I would come up with, so consider that your refutation.

This entry at Wikipedia ( United States Code) does a fair job at describing the problem created by a chronological record of the sequence of legislative acts of Congress, which is solved by the United States Code but then in turn creates the issue of the legal status of the Code. Sometimes Congress simply re-enacts an entire Title of the U.S. Code as published into law, neatly solving the problem. The rest of the Code is accepted by the courts as evidence of the law, but which can be controlled by the text of the 'statutes at large' if there is a problem. Thus the conniption fit over the difference between the parts of the U.S. Code that are "positive statuatory law" and those that are not is a non-issue unless and until anyone finds an actual contradiction between the acts of Congress and what is published in the Code.

Nice try. All negatory.

I've met the people and done the homework and have seen the letters from the IRS written to folks who have openly challenged them on their jurisdiction. They pay no taxes, have no social security numbers, et. al., etc, etc. Done deal.

They're doing it. You can do it, too.

I'm still working on my case. I'll keep ya posted.

I'm not part of any conspiracy crowd.

You might be however a member of a coincidence crowd.

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No need to repeal the 16th Amendment however. It was never ratified in the first place. That's been proven over and over again. We're being scammed and lied to.

Well then assuming you are correct (and I haven't read anything you or Grames has pointed to) Congress would have to acknowledge it or _pretend_ it needs to be repealed and do so. As it is right now the government is behaving as though it has been ratified, and would have to agree that in fact it hasn't been, or if it won't agree with you, go ahead and repeal it. Either way it must end up _agreeing_ it has no authority to tax income, and how that happens, I don't care.

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and how that happens, I don't care.

You are da man.

I'll get behind that statement 100%.

The sheople are like a pack of squabbling hogs, squabbling and fussin' and fightin' with each other in their own excrement over pointless facts -- while the looters and moochers keep milking our dried up nipples and squeezing harder for more.

There are people dumb enough to believe that somehow this is all going to turn around and start heading in the right direction.

They're still waiting "for the economy to recover" -- LOL!

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Take it to mind and take heart...

We're kickin' 'em out -- and we're gonna keep kickin' 'em out.

Every single one of 'em.

:D

NEW MEXICO SHERIFFS STANDING TALL

By Larry Pratt

November 22, 2011

NewsWithViews.com

GOA member Dr. Ray Seidel alerted me to the stirring of freedom that is taking place in his village of Ruidoso, New Mexico. I have already reported on the first battle with Mayor Ray Alborn and how he tried to impose an unconstitutional gun ban in the village. To get the full story of what happened in Ruidoso, you can go here and listen to my first debriefing session with Seidel.

I recently interviewed Dr. Seidel a second time on my Gun Owners News Hour weekly radio program and asked him about several acts of local interposition in the surrounding counties — all of which underscores the importance of the office of the sheriff and the militia.

For example, over near Deming, New Mexico is the Gila National Forest. The U.S. Forest Service wanted to make almost all of it off limits for people — until the militia of Luna County intervened. They told the feds that they would resist any effort by the Forest Service to restrict access to visitors. The result? Visitors have continued to access all of the Gila National Forest!

In the Southeast corner of the state, many landowners have working oil wells on their property. The EPA told the oil operators they would have to stop operating their wells because there was too much risk of harming the environment. At a town hall meeting convened by the EPA, a woman in her 60s rose to address the feds. She pointed out that her land had been in her family for over 200 years, and she was not about to let some official from an unconstitutional bureaucracy tell her what she could or could not do with her land.

The woman ended by warning the feds that her family has many guns and a huge supply of ammunition, and they would use all of it if needed to keep the EPA off of their land. The locals who had packed out the hearing room jumped to their feet with a shout and prolonged applause. That was in August of this year. As of November, oil is still being pumped at full tilt.

In Otero County, villages in the mountains are surrounded by forests. The county commission voted to establish an 80,000 acre plan to manage forest overgrowth. Residents wanted to cut fire breaks to protect their homes in Cloudcroft, but the Forest Service said, “No.” The residents responded that they had to for safety’s sake and were going to construct the fire break in spite of the Forest Service. Residents were told that if they cut down any trees, they would be arrested. But Sheriff Raymond Cobos told the Forest Service that if they made any arrests, they would be arrested for false arrest.

Not only were the trees cut down with no opposition from the feds, the first tree was cut down by Congressman Steve Pearce (R-2nd District). Would that there were many more like Rep. Pearce. The folks in the Second District are blessed with a constitution-supporting congressman and a number of constitutional sheriffs backed by the militias of their counties. This is the way that local governments can push back and help the feds to live within the limitations that have been placed upon them in Article 1, Section 8 of the U.S. Constitution.

As you can see, there’s a lot happening in New Mexico. And Dr. Seidel has been at the center of a lot of it. Two weeks after the people of Ruidoso prevailed in the gun ban debate, Mayor Alborn decided to seek revenge. He went to the state capital of Santa Fe and met with federal officials there. That same week, Seidel got a notice from the IRS that he had until a certain date to file his taxes, which he has refused to do for several years.

Seidel makes no secret of his refusal to submit to the IRS which he considers as part of an unconstitutional regime in Washington. The IRS intended to encumber his assets if he did not bend his knee. Seidel visited with the county sheriff who understood what Seidel was trying to do and told him he “would have his back.” The same was true for the village police chief – the same officer who refused to have his men arrest people who were defying the Ruidoso gun ban by carrying openly in the village council chambers.

Not only was the sheriff and police chief alerted to the possibility of IRS action against Seidel, but so was the militia in Lincoln County – some 200 plus men who keep their rifle and battle bag in their vehicles 24/7. They can muster in about 30 minutes at any place in the county.

Seidel visited with the village assessor, who would be the official to place the encumbrances on his assets. Seidel explained (as he does with everyone) that Title 42, Chapter 1, Subchapter 1, Section 1983 of the federal code would be used to sue her personally for violating his civil rights — that is, he would sue her if any of his assets were encumbered without having first secured a warrant from an Article III court.

Seidel has frequently argued that he will gladly submit to a federal court (authorized under Article III of the U.S. Constitution) as opposed to a mere tax court (which is an unconstitutional creature within the IRS). As with many administrative agencies, the combining of legislative, executive and judicial powers within the same four walls constitutes the very definition of tyranny which James Madison warned us about in Federalist 47.

Seidel has used Title 42 on other occasions. One involved a state trooper with an anger management problem who made a false arrest on Seidel’s son. Since being served with a Title 42 suit, the officer has been able to control his anger.

The deadline is long past, and the IRS has done nothing, so the assessor is off the hook for now. But New Mexico is becoming a text book example of how the Founding Fathers envisioned the states would rein in an out-of-control government.

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As stated by Alexander Hamilton in Federalist 28: “It may safely be received as an axiom in our political system that the State governments will, in all possible contingencies, afford complete security against invasions of the public liberty by the national authority.”

If there were more sheriffs like those in New Mexico serving around the country, we would be well on the way to safeguarding our liberties against Washington’s “invasions of the public liberty.” It also might occur to the Congress that more examples of sheriffs interposing themselves might result in shrinking down the federal government to do little more than just funding the national defense.

© 2011 Larry Pratt – All Rights Reserved

Erich Pratt is the Director of Communications for Gun Owners of America, a national gun lobby with over 300,000 members. GOA is located at 8001 Forbes Place, Springfield, VA 22151.

Either Pratt or another GOA spokesman is available for press interviews.

Larry Pratt has been Executive Director of Gun Owners of America for 27 years. GOA is a national membership organization of 300,000 Americans dedicated to promoting their second amendment freedom to keep and bear arms.

He published a book, Armed People Victorious, in 1990 and was editor of a book, Safeguarding Liberty: The Constitution & Militias, 1995. His latest book, On the Firing Line: Essays in the Defense of Liberty was published in 2001.

The GOA web site is: gunowners.org. Pratt’s weekly talk show Live Fire is archived there at: http://www.gunowners.org/radio.htm

E-Mail: [email protected]

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